Swiss Investor Aravis to Seek EUR100M for Third Biotech Fund

Swiss investor Aravis plans to capitalize on the shortage of early-stage capital for European health-care startups by raising a 100 million euro biotechnology venture fund, VentureWire has learned.

Biotech investment in the U.S. and Europe has been falling as venture firms run short of funds and as limited partners hold back while they wait for existing commitments to pay off.

The $3.4 billion invested in U.S. biotechs last year was the lowest since the $1.96 billion deployed in 1999, according to VentureSource, which is owned by VentureWire publisher Dow Jones & Co. Venture firms put EUR771.8 million into European biotechs in 2012, down 19% from the EUR952.8 million invested in 2011. A few years ago, firms were investing nearly twice as much, pumping EUR1.46 billion into European biotechs in 2006, the data show.

The last time European biotech investment came in below the 2012 total was 1999, when European biotechs raised EUR689.9 million, according to VentureSource.

Aravis, formed in 2001, has been investing throughout these cycles. Over the years, firms have tested several biotech strategies. Early last decade, investors funded startups that planned to emerge as full-fledged drug companies, capable of discovering and developing therapies themselves. Midway through the 2000s, many firms shifted to specialty-drug companies that acquired and sold products that were already on the market.

More recently, several firms, such as Index Ventures, are backing virtual startups that develop one or two drugs that they've in-licensed.

Throughout, an important part of Aravis's strategy has been investing in biotech startups with technology platforms that can interest corporate partners. Portfolio company Ambrx Inc., for example, has attracted partners such as Merck & Co. with its "protein medicinal chemistry" capability, which enables it to develop variants of proteins and antibody-drug combinations that are optimized to have drug-like properties.

"People are looking for innovative platform technologies," said Dr. Simon Nebel, a managing partner with Aravis. "Pharma is ready to partner early [on]."

The firm also sees opportunity for some biotech platform companies to generate significant cash flow through alliances or clients. This could enable some to emerge as attractive candidates to go public, Dr. Nebel said.

Aravis, which closed its $60 million first fund in 2003 and its second fund, Aravis Biotech II LP, at 40 million Swiss francs in 2008, has seen several early-stage biotech investments pay off. Its exits include Synosia Therapeutics Holding AG, a developer of drugs for psychiatric and neurodegenerative diseases that merged with Biotie Therapies Corp. in 2011; Panomics Inc., a provider of products used in genetic, protein and cellular analysis that was acquired by Affymetrix Inc. in 2008; and cancer-drug company Miikana Therapeutics Inc., bought by EntreMed Inc. in 2006.

Though Aravis has invested in some U.S. companies, such as San Diego-based Ambrx, it now concentrates on Europe. As early-stage investors, the partners have concluded that they should be a short distance from their companies so they can work with them closely, according to Dr. Nebel.

The team also sees a more favorable regulatory climate in Europe than in the U.S. And though there's a strong network of biotech angel investors in Switzerland, there's a shortage of larger investors who can provide Series A funds in Switzerland and throughout Europe, he said.

Aravis has one or two more deals to make from fund two, said Dr. Nebel. With a EUR100 million fund, it would invest in 10 companies, he said. Fundraising may start later this year, he said.

Another early-stage European investor in the market now is Paris-based Edmond de Rothschild Investment Partners, which secured EUR125 million toward its fourth health-care fund last year and expects to close it at EUR200 million in the coming months, according to the firm.